What If There Is a Mortgage on an Inherited Home?
by Ted Ricasa on May 19, 2014
When a loved one passes, children and close family members are often tasked with dividing the estate and settling the deceased’s affairs. In many cases, a family member may end up inheriting a home. While this may be a windfall for some, others may find themselves dealing paperwork, mortgages, or a house they simply don’t need or want. Inheriting a home with a mortgage raises a lot of questions. Can I assume the mortgage? And what exactly happens if I can’t afford the mortgage?
Inheriting a Home with a Mortgage
First question: What do you intend to do with the home? If you simply want to live there, then in most cases the lender will allow you to assume the mortgage payments. However, if you plan on renting the home to other people, as many people do, then you likely need to refinance the home in your name. Of course, the type of mortgage taken on the house will have a major impact on your decision. For example, many seniors take reverse mortgages out on their homes, which may mean assuming the mortgage will be impossible, as we explain below.
What Is a Reverse Mortgage?
When faced with impending retirement, home repairs, or financial shortfalls, many people turn to reverse mortgages as a form of extra income. Instead of sending payments to the lender as you do with a traditional mortgage, in a reverse mortgage the lender pays you from the equity in your home. There are multiple types of reverse mortgages, some backed by private lenders and others backed by the federal government. When the person who took out the reverse mortgage dies or moves out, the loan amount must be paid. Some inheritors choose the pay off the loan themselves and inherit the home, while others must sell the home to pay back the loan, receiving any remaining proceeds from the equity in return. While reverse mortgages can be a lifeline for people with debt, they can make inheriting a home a headache.
Can I Refuse?
When inheriting a home with a mortgage, you may find it in your best interest to refuse. You have a nine-month window in which to disclaim an inherited home. If the mortgage just isn’t feasible with your budget, or the property taxes are excessive, you should consider refusing the home. Likewise, if the home is in poor shape and will require extensive repairs or is under threat of foreclosure, you may find it best to avoid inheriting the home all together. Finally, many states impose inheritance taxes that could place a serious strain on your budget.
If you would like to talk to someone about the process of inheriting a home, you could speak with the lender or your realtor. If you think you may be interested in selling a home, you can contact Fast Home Help to request an all-cash quote. We would be happy to answer any questions you may have about the process of selling a home.